How to win a business assignment in Southeast Asia
by: Erika Visser, Associate partner of Hofstede Insights
Why should I read this document?
The goal of this document is to give some specific details on how business is conducted in Southeast Asia and to give a few pointers on how to win business assignments in Southeast Asia. This document will summarise and refer the following documents:
Important!
The most important things to know about winning business in Southeast Asia:
- Build relationships and trust first before attempting any business negotiations.
- Negotiate at a high level in a hierarchical culture. The decision-makers are at the top managing top-down.
- Understand and acknowledge the hierarchy by showing respect or giving ‘face’ to your Southeast Asian counterparts.
- Identify key decision-makers or most influential stakeholders and build long lasting relationships with these stakeholders.
- Understand that the decision making process is much slower than in low PDI cultures due to the different layers of bureaucracy thus patience is key.
- Communication in Southeast Asia is implicit and thus nonverbal.
- Corruption is still a major problem in most Southeast Asian countries. Be aware of the political landscape of each country you are dealing with in Southeast Asia.
- Reliable third party intermediaries can help to connect you with suitable business partners and to help navigate the cultural landscape.
Southeast Asia has a mixture of different cultures with some overlapping characteristics, however, each country is unique and requires a deeper understanding of its cultural values and norms. Southeast Asia mainly consists of Family cultures (high PDI, low IDV & low UAI) with one exception, Thailand is a Pyramid culture (high PDI, low IDV & high UAI). It is also important to note that Family cultures have notable differences depending on high and low MAS scores. For example Vietnam as a Family culture has high PDI, low IDV, low UAI and lower MAS scores thus a country with more feminine values, whereas the Philippines, also a Family culture, has high PDI, low IDV, low UAI and higher MAS score thus a country with more masculine values. It is important to always keep in mind the impact that the combinations of cultural dimensions have and not to assume that all cultures in Southeast Asia are the same!
Build relationships and trust first
Before attempting to do business in Southeast Asia, focus on connecting with the right business partners and building long-lasting relationships. Without long-lasting, trusting relationships business dealings in Southeast Asia will most likely fail, but building rapport takes time and thus foreign investors should reset their expectations on how long it takes to negotiate a business deal in Southeast Asia. Unlike task-orientated cultures such as low PDI, high IDV countries (for example US, UK, and AU) high PDI, low IDV countries in Southeast Asia (for example Vietnam, Thailand, Malaysia, Indonesia, Singapore, and the Philippines) are relationship-oriented and Southeast Asians will need to know who they are dealing with and whether they can trust their foreign partners before stepping into business dealings. Trust in Southeast Asia is emotional and can be established through numerous ways including the following; 1) being introduced by a mutually trusted third party, 2) through understanding and respecting the hierarchy and showing respect or giving face to seniors/superiors, 3) by accepting social invitations and using social meetings (where business is most likely not discussed) to get to know one another, 4) by never criticising Southeast Asians, which will cause them to lose face and thus disrupt the harmony, 5) by being patient and not rushing to get a deal done, 6) by communicating implicitly and by compromising where possible in the short-term to strengthen relationships in the long-run. It is not a sprint but a marathon!
Negotiate at a high level in a hierarchical culture
Southeast Asian countries are all hierarchical and decision-making is top-down. Most countries require that consensus should be reached among the main stakeholders and the final decisions are made by the most senior party in the company or department. When negotiating with Southeast Asian countries, foreigners should understand that the person you are dealing with is most likely not the main decision-maker and that they will need to run all the details by their superior (and they most likely need to run it by their superior). This takes time and a lot of patience. At times you might learn that you have been dealing with the wrong department and the process will start all over again, or if the person you are dealing with is promoted to another division or your main negotiators leave the company or are transferred/promoted this will also cause delays as Southeast Asians are relationship-orientated.
Identify key decision-makers
To help save time, make sure that you identify the key decision-makers and build rapport for smoother business dealings. This can be accomplished through the help of a third-party intermediary/someone with a deeper insight into the Southeast Asian business structure and hierarchy. Once you have identified the key-decision makers, you need to be introduced by a mutually trusted third-party connection and spend time through informal and formal meetings to build long-lasting trusting relationships. If the key decision-makers cannot be identified, you might most likely not be able to complete business negotiations.
Understand and acknowledge the hierarchy by giving ‘face’
As high PDI, low IDV (hierarchical, collectivist societies), all Southeast Asian countries strive for harmonious relationships. Giving face to superiors/older Southeast Asians is an important part of maintaining this harmony, and losing face can easily disrupt the harmony resulting in unsuccessful business dealings. Ways to cause a loss of face; 1) openly criticizing your Southeast Asian business counterparts, 2) showing anger by raising your voice or tone, 3) asking direct questions and forcing your South Asian counterparts to give a direct answer, 4) correcting implicit messages from your Southeast Asian counterparts in the attempt to clarify what they are saying, 5) driving a hard bargain, 6) showing up late for meetings, 7) asking junior staff to deal with more senior Southeast Asian connections, 8) singling out Southeast Asians/scolding or placing blame, 9) challenging the authority of high ranking Southeast Asians, 10) openly disagreeing with Southeast Asians, etc.
Giving face can be done through; 1) using the appropriate titles, 2) respecting senior/older Southeast Asians, 3) paying the bill when dining out and you are the host, 4) learning about Southeast Asian culture, 5) not stereotyping Southeast Asians, 5) being aware of political/cultural sensitive topics, 6) respecting implicit communication, etc. Relationships in Southeast Asia are complex and sometimes the lines between personal and business favours can be blurred. Foreigners should make sure that they are not participating in any form of corruption by seeking legal advice if they feel there is a gray area, such as receiving expensive gifts or being asked to do personal favours, give expensive gifts or pay bribes.
The use of reliable third party intermediaries
As mentioned above, when foreigners want to invest in the Southeast Asian markets, local third-party contacts that are mutually trusted by the foreign investors and local partners should be used to establish trusting relationships. This will also help to speed up business negotiations and help the foreign investors to gain a deeper insight into the local culture. Third-party intermediaries can help to navigate the cultural landscape and help to culturally translate subtle implicit messages that are portrayed by Southeast Asians through their body language and tone. Experienced third-party intermediaries might also be able to navigate the political environment avoiding foreign investors being caught up in corrupt business dealings, manage local networks, and identify relevant decision makers. Third-party intermediaries should be experienced, preferably be local, live in Southeast Asia, have a proven track record of their success dealing with foreign and local business partners, have good references, etc.
Communication in Southeast Asia is implicit
Another important part of Southeast Asian culture is the way in which Southeast Asians communicate. Communication is high context based, and thus understanding the environment/the context is key to unraveling the subtle implicit messages. Southeast Asians can say one thing and mean something completely different. It is up to the receiver to interpret the correct message. This is the opposite of low context cultures where the message is more direct, i.e. what I say is what I mean and thus it is the sender's responsibility to send a clear message. Body language and other subtle clues will help foreigners to understand what Southeast Asians are saying, however, third-party intermediaries could be more effective as it is not possible for foreigners to learn the nuances of implicit communication without extensive experience/time spent in that country. For example, the answer ‘yes’ can have several meanings ‘yes, I have heard you’; ‘yes, I understand’; and ‘yes, I agree’ can have totally different outcomes when it comes to business negotiations and thus foreigners should never assume that ‘yes’ always means ‘yes, I agree’. This is one of the greatest pitfalls for foreigners negotiating with Southeast Asians. It is also rude to say ‘no’, and thus foreigners should be mindful how they communicate negative messages to Southeast Asians.
Foreigners can re-phrase questions if they want to get a better understanding about the message communicated by Southeast Asians and compare responses, never forcing Southeast Asians to give a direct answer as this will cause them to lose face. Keep communication channels open and stay in touch often but never be too direct, noisy or confrontational. Social meetings can be used to get to know your Southeast Asian counterpart where business might not be discussed (always follow the lead of your Southeast Asian counterparts, i.e. only discuss business when they bring it up). Silence is another important communication tool used in Southeast Asia and it is not always a sign that things are not progressing. In Southeast Asia it is deemed good manners to think about your response before hastily giving feedback.
Foreigners can re-phrase questions if they want to get a better understanding about the message communicated by Southeast Asians and compare responses, never forcing Southeast Asians to give a direct answer as this will cause them to lose face. Keep communication channels open and stay in touch often but never be too direct, noisy or confrontational. Social meetings can be used to get to know your Southeast Asian counterpart where business might not be discussed (always follow the lead of your Southeast Asian counterparts, i.e. only discuss business when they bring it up). Silence is another important communication tool used in Southeast Asia and it is not always a sign that things are not progressing. In Southeast Asia it is deemed good manners to think about your response before hastily giving feedback.
Be aware of corruption in Southeast Asia
Corruption is still a major issue in many Southeast Asian countries. The Corruption Perception Index (CPI) shows a list of 176 countries globally and the corruption ranking. It is important that foreign investors are well aware of corruption within each of the Southeast Asian countries they are dealing with and legally seek advice on how to navigate the political landscape before rushing into business negotiations. What can foreign companies do to prevent being caught up in corruption? 1) Put in place controls, policies and procedures, 2) pay attention to compliance, 3) train employees on anti-bribery and anti-corruption practices, 4) invest in compliance functions such as finance, internal audit and legal, 5) have strong compliance teams with managers that understand the local laws and regulations, 6) ensure that leadership is compliant and enforcing anti-bribery and anti-corruption policies. Lastly, CEOs should be held accountable to adhere to the code of conduct fostering a culture of compliance that stands against bribery and corruption.
Short Case Study/Interview
All you need to know about starting up in Asia (LINK)
Wood Egg publishes annual guides for entrepreneurs looking to relocate their businesses to Asia. In an interview posted on the Virgin Airlines website, Janet Chang, the President of Wood Egg, discusses everything from the best and worst of startup culture to advice for budding relocators.
Describe the startup culture in Asia:
First, people only do business with their "friends". Second, it might take several "getting to know each other" meetings before you are considered a "friend" worthy of a mutually rewarding business relationship. Lastly, people are very loyal to the people in their "family and friends" circle. Once you are "in", you really are "in" for life.
First, people only do business with their "friends". Second, it might take several "getting to know each other" meetings before you are considered a "friend" worthy of a mutually rewarding business relationship. Lastly, people are very loyal to the people in their "family and friends" circle. Once you are "in", you really are "in" for life.
What are the best aspects of a startup in Asia?
Allow for certain advantages for entrepreneurs and business owners who are patient and persistent. Learning the language, adapting to the local living environment, and navigating the unfamiliar regulatory environment all take patience and persistence. Above all are the relationships. Advantages of having formed relationships with highly loyal business compatriots come to those willing to invest the time and energy into a relationship for the long term, and conversely act as a major barrier to entry to those focused on quickly capitalising on opportunities.
Worst aspects of a startup in Asia:
We often hear entrepreneurs mention their challenges, the least pleasant of which is navigating legal and government regulations, including those related to visas and staying in the country. Additionally, there are three other common challenges we see:
We often hear entrepreneurs mention their challenges, the least pleasant of which is navigating legal and government regulations, including those related to visas and staying in the country. Additionally, there are three other common challenges we see:
- language learning
- adapting to cultural norms
- finding and managing local talent
In Summary:
- Expect to spend six to 12 months building strong relationships with potential business partners and suppliers before deciding to do business with them. Even with good relationships, verbal agreements, handshakes, and the honour code are insufficient in most cases. Get everything in writing.
- To attract a good team and retain employees, cash is king. Employees don't put as much value on personal autonomy in work schedules, work-from-home arrangements, or other "perks" commonly valued by employees in North America and Europe.
- When miscommunications are surfacing with local employees and you're at your wit's end, over-communication to the point of becoming a "micro-manager" may not be the expected solution, but can turn out to be the simplest antidote.
References & Links